Post Punjab National Bank Fraud – Reserve Bank of India (RBI) has started the auditing of all the public sector banks for issuance of LoU’s and trande finance business activities. The RBI audit will look after the exisitng process and following of extant guidelines by Foreign Exchange branches of PSB’s.

It is believed that majority of higher Non performing accounts (NPA) in PSB’s as like Mallaya or Nirav Modi are pertaining to trade finance only.

Earlier RBI had already issued a letter to all the banks to provide the details pertaining to details of the Letter of Undertaking (LoUs) they had written, including the amounts outstanding, and whether the banks had pre-approved credit limits or kept enough cash on margin before issuing the guarantees.

Rs 12000 crore PNB fraud done through fraudulent issuance of LoUs and Letter of Credits (LC’s). Other than this Oriental bank of Commerce, Bank of Baroda etc has filed the cases against many of the business houses complaining the fraudelent transaction related to trade finance only.

Banks have also been asked by the finance ministry to come up with a “pre-emptive” action plan within a fortnight to combat rising operational and technical risks, and assign clear accountability to senior functionaries.